There were many reasons why the Sanlu milk crisis occurred. Between 2000 and 2007, China’s dairy consumption increased an average of 23% per year. This large increase put pressure on the dairy industry, which was having difficult time meeting consumer demand. The shortage of raw dairy product prompted many companies to source from dairy farmers without properly conducting due diligence and fully vetting their operations. Also, the cost structure of the dairy industry and lack of government regulations incentivized dairy farmers to dilute their milk so they could sell more of their product. The dairy industry adopted a crude protein test as a quality control measure; however, many dairy farmers were able to cheat this test by artificially boosting protein levels by adding melamin to its product. The melamin tainted milk caused the illness of 300,000 children and the death of six more. Thesis
With the credibility of the Chinese dairy industry in shambles, there are several measures that must be taken to demonstrate to the consumer that a similar event will not occur in the future. Steps must be taken by the dairy industry and the Chinese government both to demonstrate that milk products are once again safe to consume. If the dairy industry can regain consumer confidence and demonstrate to the public that the melamin issue has been resolved, it should once again be able to prosper.
The first thing the dairy industry must do regain credibility and consumer confidence is to apologize to the public and give an honest explanation of how this occurred. They also must admit that Sanlu was wrong in trying to hide the scandal by paying off the victims with bribes and free product. One of the reasons this crisis occurred is that the cost structure in the dairy industry was not sustainable. The Chinese government put a cap on the price milk could be sold for on the open market. This significantly impacted the margins that dairy farmers where...